Offer in Compromise Help From Licensed Tax Agents in Pasadena, CA
Everyone who owes the IRS has heard about settling for pennies on the dollar. The program behind that promise is real, but it is not for everyone. At Fresh Start Tax Relief Services in Pasadena, our licensed tax agents help you find out whether an Offer in Compromise makes sense for you and, if it does, prepare and pursue it the right way. This program is structured to settle a tax liability for a fraction of what is owed, and taxpayers must meet certain financial guidelines. As a women-owned business with decades of experience dealing with the IRS, we will give you the truth about your chances before you spend a dime pursuing one.
How the IRS Decides Whether to Accept
The IRS accepts an offer when it believes the amount offered is the most it can reasonably expect to collect. There are three grounds for an offer:
- Doubt as to collectibility, when you cannot pay the full balance before the collection period ends. This is by far the most common.
- Doubt as to liability, when there is a genuine question about whether the tax is correct.
- Effective tax administration, when paying in full would create an economic hardship or be unfair given exceptional circumstances.
Your Reasonable Collection Potential
For most offers, the IRS calculates what it calls your reasonable collection potential. That figure combines the equity in your assets with your future disposable income, meaning what is left after allowable living expenses. If you plan to pay in a lump sum, the IRS generally looks at 12 months of future income. For periodic payments, it generally looks at 24 months. Your offer usually needs to meet or exceed that number.
This is where careful preparation matters. How assets are valued and which expenses are allowed can change the result significantly.
What It Takes to Apply
Before submitting, you must have filed all required returns and be current on estimated payments for the current year. You cannot be in an open bankruptcy proceeding. The application includes Form 656 and a detailed financial statement covering your income, expenses, and assets.
Payment Options
There are two ways to structure the payment. A lump sum offer requires 20% of the offer amount with the application, and that payment is nonrefundable. The rest is paid in five or fewer installments within five months of acceptance. A periodic payment offer requires the first payment with the application, and you continue making monthly payments while the IRS evaluates it. An application fee also applies, though taxpayers who meet the IRS low-income guidelines are exempt from both the fee and the upfront payments.
While Your Offer Is Being Reviewed
The IRS generally will not levy your accounts while an offer is pending. Interest continues to accrue, however, and any federal refunds you are due through the year the offer is accepted are kept and applied to your balance.
After Acceptance and If the Answer Is No
An accepted offer comes with a commitment: you must file and pay all taxes on time for five years. Falling out of compliance during that period can cause the offer to default and the original balance to come back.
Sometimes the IRS rejects an offer. You generally have 30 days from the rejection letter to appeal, and we know how to appeal that rejection and work toward a good compromise agreement. Our
IRS appeals page explains that process.
When an Offer Is Not the Right Fit
Not everyone qualifies, and we would rather tell you up front than collect a fee for an offer that will be rejected. If your numbers show you can pay the balance over time, an installment agreement is often the better path. Penalty abatement can also reduce what you owe. You will only get the truth from us about which option fits.
Serving Pasadena and Taxpayers Nationwide
We help clients in Pasadena, San Marino, Alhambra, Arcadia, and throughout Los Angeles County, and our reach goes much further: "Not only do we service every single county in California, but we service taxpayers nationwide." Learn more about the Tax Superwomen on the Fresh Start Tax Relief home page.
Frequently Asked Questions
How does the IRS decide what my offer should be?
The IRS calculates your reasonable collection potential: the equity in your assets plus future disposable income, generally 12 months for lump sum offers and 24 months for periodic payment offers.
What do I have to pay when I submit an offer?
A lump sum offer requires a nonrefundable payment of 20% of the offer amount. A periodic payment offer requires the first monthly payment, with payments continuing during review.
Will the IRS levy my accounts while my offer is pending?
Generally, no. The IRS typically does not levy while an offer is under consideration, although interest continues to accrue on the balance.
What happens to my tax refunds?
The IRS keeps any federal refunds you are due through the tax year in which your offer is accepted and applies them to your balance.
What do I have to do after my offer is accepted?
You must file all returns and pay all taxes on time for five years. Falling out of compliance can cause the offer to default.
Can I appeal if my offer is rejected?
Yes. You generally have 30 days from the date of the rejection letter to request an appeal, and we handle appeals for our clients.